Friday, June 24, 2011

I'm taking a much-needed two-week hiatus from the markets. I'll have a laptop with me and will be checking in with the markets/news, but I probably won't post anything unless I see something that really irritates me and I need to vent lol.

Many of you have by now read about the merger deal between Golden Minerals and ECU Silver. It has the potential to yield some brilliant synergies, as Golden Minerals has two potentially prolific silver properties plus $100 million in cash and ECU needs cash in order to get the Valerdena blockbuster over the "finish line." I've met the new CEO of the combined entity, Jeff Clevenger, and he is a very accomplished mining company operator. You can read about the details of the transaction and the expected synergies HERE

Whoever is selling shares in ECU today has no clue whatsoever how to analyze mining companies. This deal will instantly give ECU the managerial, operational and financial "bulk" to help it fully achieve the untapped value of its massive silver deposit. I also know that ECU's geologists were "blown away" by the potential of Golden Mineral's Argentina silver deposit. For the record, I added some ECU to the fund today after it sold off. The combined entity will have some large investor support, including Sprott and Sentient Group, a private equity investment group which specializes in global resources and owns 19% of Golden Minerals.

Market-wise, I think we will drift sideways for awhile, until the conundrum of how the U.S. Government will fund the extra $2 trillion in debt that Congress will enable it to issue before the end of the summer. Of course, we all know that the white elephant in the room that no one wants to acknowledge is called "more money printing." Until the Fed blinks, I think the risk of a big accident in the stock market grows each day. In case you missed it, the FT Blog ran this article - LINK - about the massive flight of capital out of the high yield market. When I was a high yield trader, typically the direction of the big flows of capital into or out of the high yield market were a precursor to the next directional move in the general equity markets. It's not a perfect barometer but it's worth paying attention to. Please note that near-negative yield in 1 month Treasuries is always a signal of a big liquidity problem in the markets, as big money pays up to insure the return OF their capital vs. the return ON their capital.

I do believe, however, that if the equity markets take a big tumble, we will see a surprise rally in the metals, as capital begins to truly appreciate the historical flight-to-quality characteristics of gold and silver. Take a look at your intra-day charts on gold/silver/mining stocks on May 6, 2010 when the Dow had an intra-day drop of 1000 points. Gold actually traded up sharply as that was occurring, until the Fed stepped in to prop up the markets. I believe we'll see that again.

Thursday, June 23, 2011

(Note: the quote is in reference to the famous quote from Martin Siegel to Robert Freeman - of Goldman Sachs, of course - when exchanging some inside trading information, in an insider trading circle that ultimately led to the conviciton of Ivan Boesky)

Check out the comments from Robert Broaddus, former Richmond Fed head: LINK Here's the salient quotes sourced from Zerohedge:

LOL. Where there's smoke, there's fire...My argument per my previous quote is that the Government is going to try and "paint the tape" with the illusion of "disinflation" by trying to smack the commodities for awhile like in July 2008.

The delayed market reaction to Bernanke's FOMC comments yesterday is quite the joke. It is clear, to me at least, that the Government is going to wage a war on commodity "inflation" in order to pave the path to QE3. Today's bombing of the gold and silver markets didn't commence in earnest until the paper-only Comex market opened at 6:20 a.m. Denver time. Take a look at your 10 minute charts if you don't believe me.

The stock market is rightfully getting hammered today. Most of the corporate/banking earnings that have been reported over the last 2 1/2 years are derived from foreign currency exchange rate gains and the marking up of illiquid garbage positions sitting on bank balance sheets. Pure GAAP fantasy.

But there's a lot of fantasies being promoted in this country right now, including the idea that there was any real economic growth occurring since the trillions in Government stimulus and Fed money printing were initiated in late 2008. Although Obama has been gleefully reporting nominal GDP growth over the last 2 years, if you use a true price inflation measure, REAL GDP has actually continued to decline ("real GDP" is the actual number after adjusting for inflation). And if you undo the statistical damage being done to the employment report released monthly by the Government, and add back everyone who has actually stopped looking for a job into the defined "labor force," the unemployment rate in truth is probably closer 20% than the 9% reported by Obama.

How about the fantasy that this country can ever balance its spending budget? As of this year, the amount of money that the Government spends on just entitlement programs now exceeds the total amount of revenues received by the Government. Think about that for a second. That means that if you completely shut down defense spending, and all other non-entitlement waste, the Government is STILL operating a big budget deficit. Do the problems faced by Greece really seem so bad in comparison?

By now everyone knows that Obama is going to release 30 million barrels of oil from the Strategic Petroleum Reserve over the next 30 days in order to help alleviate the shortages caused by the Libya situation. But, as a good friend pointed out to me today, why did Obama wait until the price of oil had already fallen 22% from its recent high around $115 per barrel? How can there be a "shortage" if the price has already dropped like that without the SPR supply? It tells me that the Government wants commodities prices even lower in order to promote the appearance of no price inflation for the purpose of justifying the next round money printing.

If you don't think that QE3 is on deck soon, take a look at these remarks make by Bernanke yesterday:

We do have a number of ways of acting; none of them are without risks or costs. We could, for example, do more securities purchases or – and structure them in different ways. We could cut the interest on excess reserves that we pay to banks. And as was suggested by an earlier question — several earlier questions, actually, John’s question about giving guidance on the balance sheet or by perhaps even giving a fixed date, you know, to define extended period, those are ways that we could ease further, if needed. But, of course, all of these things are somewhat untested. They have their own costs. But we’d be prepared to take additional action, obviously, if — if conditions warrantedLINK

Does that sound like comments coming from someone who is not already planning the next massive monetary injection into the system? It will be interesting to see if, and by how much, they can squash the price of gold and silver. I believe that the market is already pricing the possibility of another big market ambush similar to the one that was implemented by Henry Paulson in mid-July 2008. If that's the case and I'm right, we could well see a shocking move higher in the metals this summer as flight-to-safety seekers rush into the metals when they realize more paper dollars are coming their way and the price of precious metals is going to go a lot higher.

But ask yourself this: if the Government is trying to set the markets up for a big shocker followed by massive monetary stimulation to address that big shocker, like in 2008, what in the hell could possibly coming at us this time around? Hint: please understand that NONE of the systemic, fundamental problems that led to the de facto collapse of the financial system in 2008 have been fixed, other than the cosmetic application of transferring trillions from the public to the banking sector. In fact, the problems have become even bigger and more global....got gold?

Wednesday, June 22, 2011

To begin with, I wanted quickly to recount a conversation I heard this morning on CNN with South Carolina Senator, Jim DeMint. DeMint has some type of "pledge" in which he wants all Congressional signees (presumably only Republicans might sign) to withhold their backing of the debt limit increase unless legislation is also passed which implements programs which would presumably lead to an eventual balanced budget.

This is pure theater of the absurd. We wouldn't even be in this mess if our system was based on a gold standard. DeMint's pledge paper is worthless and Washington DC will ultimately spend this country into collapse. Period. Here's a brilliant quote for Richard Russell:

A few things you know for certain. Gold will not go bankrupt. Gold will always have a market. All fiat money becomes worthless over time. Gold is real tangible money, and it will be around when the last issue of fiat money is struggling to survive. Gold has a five thousand year history of representing wealth. No fiat money has ever lasted as long as a hundred years.

Taking from the real life example going on in Greece right now, this shows why gold is not even remotely in a bubble and it demonstrates the true flight-to-safety/wealth preservation nature of this precious metal (and silver): Greek citizens are emptying savings accounts and buying gold as they brace themselves for the possibility of a sovereign default and a run on the banks. The entire article is worth reading, here's the LINK (when you pull it up, if it asks you to register in order to read the article, copy the headline and type it into the google search bar and click on the article link after you search and you should be able to see the entire article).

Housing continues to crash, despite the best "spin" the media attempts to paint over the facts. Recall that one of my premises is that the "shadow" inventory of homes is significantly larger than is widely acknowledged by anyone in the media, Wall Street and even most analyst/commentators. We know that banks are substantially slowing down foreclosures and default declarations and doing what they can to avoid taking on more REO. It is my contention that the REO component of the shadow inventory is massively larger than is being published by the Government or private sources (the other primary "shadow inventory" component would be all those people current on their mortgage but would sell their house if they could get a price equal to their outstanding mortgage and all those who want to sell before the next leg down but are waiting for the market to "come back a little").

Well, the FT Blog published an article which attempts to quantify the growing REO (real estate owned) inventory at FNM/FRE/GNMA/FHA:

The federal share of REO property is also rising. For 1Q, RealtyTrac estimates that total REO property held by lenders totaled 872,000. Of this, we know from monthly or quarterly financial statements that Fannie Mae, Freddie Mac, and the FHA hold roughly 300,000 of these properties on their books, and that this inventory has been rising by more than total REO inventories over the last year. Over the next few quarters, the federally backed entities are likely to see their inventories of REO property become a larger share of the total

Here's the LINK If you read the article, you'll see that it is likely that if the Government does not play "hide the salami" with its housing inventory the way banks do, the amount of homes streaming into the "for sale" inventory could increase by as much as 30%. You still feel confident that we've reached the bottom of the housing crash?

Before you answer that question, take a look at this existing home sales data released yesterday, as existing home sales hit a six-month low: LINK Hmmmm, I thought we were in the peak selling season for housing...

Monday, June 20, 2011

Hot off his straw-poll win at the Republican Leadership Conference in New Orleans, NBC's Today Show interviews Mr. Paul this morning. I consider this significant to Paul's campaign, because the demographic that watches the Today Show is an important voter demographic and, correct if I'm wrong, I do not believe that Mr. Paul had this kind of high profile media exposure in 2008:

Also: RIP to Clarence Clemmons, who was the driving force in the sound behind Bruce Springsteen's E Street Band and helped Springsteen catapult into huge fame in the late 1970's.

The big buzz this weekend, away from Greece, centered around the Zerohedge.com report that apparently retail traders/investors are going to be stopped from trading OTC gold and silver futures products. But if you do some research on the exact nature of what is being regulated, it ironically in some ways is a very good thing. The products in question are OTC derivative-based "currency" securities. The paper indexes gold and silver and allows the trader to take long position in gold/silver while shorting the dollar, or vice versa. It is a pure paper derivative with absolutely no connection to physical gold and silver other than to index the dollar-based rate of return in the two products.

The TRUTH of the matter is that this is exactly the type of product that enables big banks to manipulate the gold/silver markets AND rip-off retail traders. Wall Street has, and always will, look to the retail investor as its easiest source of easy money. The less liquid and more "OTC" a product is, the bigger the margins for Wall Street. Remember, a Wall Street dealer's job is to reach his hand into YOUR pocket and remove as much money as possible. That's exactly what this type of product is designed to do. When you look at the headlines on Zerohedge, you think that all gold and silver trading is being eliminated. But Zerohedge's presentation is characteristically sensationalized. Ironically, the products being eliminated are the stuff that makes Wall St. money at the expense of the little guy.

Where I do have a problem with this kind of regulation is that it is a continuation of the Government totalitarian creep into our everyday lives. Does anyone REALLY believe that Obama or Bush or Congress has the right to believe that they know what's best for the individual? Seriously.

Here is another example of the totalitarian creep of our Government and the elimination of free press: it turns out that the "little" nuclear plant mishap in Nebraska could be turning into a serious catastrophe. Take a look at this news report: LINK The reader has to decide for himself the degree of credibility that report holds. Upon discussing it with a couple of long-time colleagues, I believe that it has a high degree of credibility. Before you dismiss this news report, please keep in mind that it is a fact that the airspace over the plant has been closed AND ask yourself how much news coverage you are seeing about this from all sources of media? I bet if I open up today's Denver Post, I won't see anything on it and Denver is not that far from Omaha...

Central Planning Obama-style moves into rural farming America. Take a look at this disaster: LINK That should frighten the crap out of everyone who reads it. Based on everything you've seen about how well the U.S. Government manages everything else it has annexed control over, does anyone really think that Obama and his band of merry idiots can help stimulate rural economic activity and farming? It's starting to get beyond the humor of the absurd in our system and become down-right frightening in this country...

As for QE3. The question is, if there isn't any QE3, how will the Government finance the additional Treasury debt that it will issuing once the debt ceiling limit is inevitably raised by at least $2 trillion? We learned over the weekend that Russia, one of the largest holders of U.S. Treasuries, has been quickly reducing its holdings and will continue to reduce its holdings: LINK So there goes one big historical source of funding. And China, despite the holdings as reported in the monthly TIC reports, has been quietly reducing its dollar holdings using clandestine methods. This is something I have always suspected, but Standard Chartered Bank lays out a very credible scenario here: LINK If you bother to read through that and know anything about the fund flows the way they are reported in the TIC report, then you will have accept that the scheme described by Standard has a very high degree probability.

So if Russia and China are no longer financing the U.S. Government's massive spending addiction, and the Fed has been the primary financier since December, if the Fed were to NOT extend its QE program in some form, who will finance the $2 trillion?

It's getting very "spooky" out there in the markets and based on the way that gold and silver have been performing recently, I believe that large flows of very smart capital around the world are beginning to view gold and silver as the last port in the face of a very serious in-coming financial tsunami...

Friday, June 17, 2011

Question: If you were advising the Federal Reserve, what would you say are the unsolved economic problems of the day?

Milton Friedman: One unsolved economic problem of the day is how to get rid of the Federal Reserve. - January 1996 interview on NPR

**********

Ron Paul has been aggressively seeking an official, independent audit of the gold that is supposedly being held at Ft. Knox on behalf of all U.S. citizens. Such an audit has not taken place since Eisenhower was the President? What gives there? In the face of mounting criticism and citizen requests for this audit, why does the Treasury ignore this issue? What does it have to hide?

At this point, anyone who looks at the Treasury financial statements is placing their "full faith" in the belief that the Government is honestly reporting its numbers. Does anyone really believe that the economic numbers the Government publishes on a weekly basis? Everyone believe that the Government is telling truth about why we're spending trillions on wars in Iraq, Afghanistan and now Libya?

The Fed has been spending millions to fight all of the recent Freedom Of Information Act requests, which have been filed so that we can see what the Fed is doing secretly with our money - especially now that most of what Fed does has a guarantee on it by the Treasury. Most notably for me is the GATA request that we get to see what kinds of transactions the Fed has been in engaging in with OUR gold. It is highly likely that the 8100 tonne book entry on the Treasury balance sheet is just another electronic entry on a piece of paper. How about we get to take a look at the actual physical gold that is supposedly represented by that electronic entry? How about we get to see if that gold has any legal encrumbrances attached to it like Federal Reserve gold swaps and leasing transactions?

An audit needs to be done and it needs to be done under the full, transparent scrutiny of all U.S. citizens who would like to watch it happen. And of even more immediate concern, at least to me, is the drain on physical gold and silver occurring at the Comex. It's kind of spooky the way unencumbered physical silver is being, and has been, "sucked" out of the system (Comex, SLV) over the past couple months. As much as I want to see Ron Paul force an open audit of Ft. Knox, I'd love to see an open audit of the Comex. I believe the Comex problem is the Achilles Heel of this whole mess.

It wouldn't take much to stage a run on the Comex. And when that occurs, if it turns out that the Comex is unable to make deliveries of actual physical metal and instead changes its rules and defers to cash settlement of contracts, that's when all hell will break loose. I would then expect that GLD and SLV will head south quickly in price while the global spot price of gold and silver head for the moon. The slight inversion in silver futures will go nearly verticle and the dollar index will go into a serious tail-spin. But how about we just start with a simple audit of Ft. Knox?

Whenever destroyers appear among men, they start by destroying money, for money is men's protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it becomes, marked: 'Account overdrawn.' (famous speech by Francisco D'Anconia in "Atlas Shrugged")

Thursday, June 16, 2011

By now everyone has seen the horrible economic statistics released today and yesterday. Today's Philly Fed Index has confirmed the other regional Fed indices released earlier, showing an economy going into a tailspin. The Philly Fed index printed at -7.7 vs. overpaid Wall Street Einstein economists' forecast of +9. Talk about not being about to hit the broad side of a barn with a sawed-off 12-gage from 10 paces...As Zerohedge.com points out, this index drop "is the biggest three month collapse in the history of the series, plunging from 43.4 in March to -7.7 in June, or an over 50 point drop in three months."

And don't think that the slight increase in housing starts is a good signal. The positive reading occurred because of an increase in the start of apartment construction. Why is this bad news? Because the biggest demographic trend in housing right now is a big shift from home ownership to apartment renting. That just means that more homes are likely coming on the market from homeowners who want to bail and rent.

In terms of what could be a big QE3 (of some sort) signal, I started thinking about systemic liquidity after observing the most recent developments in Europe. We know that the Fed has been liquifying the European banking system with $100's of billions in currency swaps, largely with French banks. Based on various metrics which you can access from posts yesterday at http://www.zerohedge.com/, it would appear that there's a massive liquidity crisis that's developed in Europe. Please note, that this is not primarily because of Greece. Greece may be that proverbial "straw/camel's back" event, but it's small compared to the big picture there and here.

Anyway, I started thinking about short term rates in the U.S. and recalled that back in the late spring/early summer of 2008, the rate on 1 month Treasuries in the U.S. went negative. What this means is that big money would rather pay to park cash in very short term Treasuries rather than get paid to leave big chunks of cash in the banking system. The idea here is that because the U.S. can just print money at will, there's less risk of losing large sums of money in short-term Treasuries than there is in funds left at banks in excess of the $250k FDIC/Taxpayer guarantee (of course, money would have to be printed to honor that as well but the amount is capped). So big money would rather be guaranteed of getting back slightly less than invested over a 30-day period (negative interest rate) than risk 30 days in the banking system. That is one of the purest signals of a massive banking system liquidity crisis.

To cut to the chase, take a look at this 1-month Treasury interest rate chart, which I put together today - it goes back June 2008:

Yield On One-Month U.S. Treasury Securities

You see where the interest rate is at the upper range is when the liquidity crisis developed and the rates trended toward zero (the flight to safety). Then QE was rolled out and the rate snapped back to the .2% area. Right now we are in the flight to safety/liquidity fear range. Is QE of some sort next?

It is even more interesting to me, based on everything I read and observe/trade in the markets, specifically the big drain of physical metal from the Comex and recently, of silver from SLV, that it would appear that very smart money is starting to rush into physical gold and silver. I have always thought that the next systemic puke would entail a big rush into the physical gold/silver. We may just be seeing the beginnings of that.

And let me end with this quote from the First Deputy of the Russian Central Bank:

When it comes to hedging against risks, however, gold is one of the safest bets, Ulukayev said, reflecting a view increasingly shared by other central banks seeking an alternative to currencies and protection from the debt crisis in Europe. "Increasing monetary gold in our reserves is an important element," Ulyukayev said.

Wednesday, June 15, 2011

Yesterday Bernanke gave a speech in which he pontificated like a baffoon about how the Treasury debt limit was the wrong tool to force fiscal prudence. This is, quite frankly, a stunning display of either baffoonery or complete ignorance, or both. LINK

The ONLY means by which to systematically prevent the Government from perpetuating and exacerbating its reckless fiscal policies is to have a mechanism in place to put a boundary on the ability of any to Government to engage in spending that is in excess of an country's economic system to support that spending. Greenspan, when grilled by Ron Paul a couple decades ago about this, arrogantly and proudly proclaimed that the checks and balances provided by well-schooled Central Bank would function in the same manner and impose the same rigid disciplines as would a gold standard. Thus, according to Greenspan, a gold standard is not necessary and is archaic.

Well, the record speaks for itself. How well has Greenspan's statement held up under the test of time? The answer to that question could not be any more obvious. The truth is that IF the Fed were functioning in the way that Greenspan proudly announced that it could, we would have never had ANY of the systemic problems which were created and mushroomed like a finanicial nuclear cloud under Greenspand and are now being made worse - at a geometric rate of acceleration - under Bernanke. In fact, the term "Quantitative Easing" would not be readily found anywhere, even using Google. And if the gold standard has worked as a formidible economic regulator, then whey did we ever try to "fix" what wasn't "broke?"

And now I see the Fed wants to establish an "inflation target" as part of its policy procedure: LINK I'm not sure how they can even begin to talk about what constitutes inflation and how it should be measured unless they can present a credible "yardstick" by which to measure inflation and re-introduce the M3 money supply reporting. The Government CPI is a complete and utter joke. In fact, I just laugh whenever there is any discussion of inflation in the media. It just blows my mind that well-educated, highly paid professionals can sit around their "Roundtable" and engage in serious discussions and offer market views when the very centerpiece of their conversation, inflation per the CPI, is absolutely 100% flawed. And if the M3 metric was being used to report the money supply, and if every other industrial country uses M3 - or its equivalent - to report their money supply, how come we don't? (hint: that's a strictly rhetorical question because we all know the anwer...).

I know what the rest of the world thinks about the above policies of, and proclamations by, Bernanke: "Tidal Wave of Gold Demand Coming From China, India as Economies Expand:" LINK Meanwhile, while the rest of the world hoovers up the gold and silver that this country is selling to them, our individual States are each looking more and more like Greece. Add Minnesota to California, Illionois, New York and New Jersey: LINK

I just never ceases to amaze me that everyone over here is looking at Greece, while our own system is rapidly collapsing...

Monday, June 13, 2011

In college we referred to getting a "C" as "getting a hook." I had one or two in undergrad and one marketing in B-School (I have no idea why they required one Marketing course at the University of Chicago, but I hated it and I hated the guest professor from Northwestern - talk about a b.s. subject). Greece just got "triple-hooked" by S&P. This is not good. The reality is that Greece is insolvent and technically should be rated "D" for "defaulted." It will be interesting to see how the restructuring of Greece's debts are effected. I'm sure the most important issue for the big banks and Central Banks is how to effect the reorg without triggering the $100's of billions in Credit Default Swaps. I guess this isn't as bad as what happened with AIG. But then again Goldman Sachs does not have a stoolie like Geithner or a plant like Henry Paulson sitting in positions to bail out its losses in this situation...

Even more interesting is the situation heating up in the U.S. The U.S. is hopelessly insolvent as well, only the degree is Greece x 10. And who knows how much notional value in derivatives is outstanding on U.S.-related debt.

I was chatting with someone over the weekend and we treaded on the subject of how corrupt the entire U.S. banking system and Government has become. It really irritates that me that the CFTC refuses to acknowledge the extreme manipulation going on in the gold/silver markets on the Comex. Anyone who has looked at all the evidence, and/or has traded the silver market for as long as me (9 years now), would have to have their head up their ass to not see just how obvious and blatant the manipulation is and has become. I actually thought JPM would give it a rest after Andrew McGuire's smoking gun. But they've continued on with their typical illegal activities while Gary Gensler and his band of merry thieves at the CFTC look the other way.

The reality is that, just like Francisco D'Anconia's famous speech proclaimed back in 1957 - when "Atlas Shrugged" was published, the people who the laws are supposed to protect us from are in power legislating laws to protect themselves from us (Patriot Act, Homeland Security Act, Detainee Bill). So I guess that for me to expect that Gary Gensler and Eric Holder, and anyone else in the current Presidential Administration for that matter, including the President, would be willing to enforce the remaining laws in order maintain some semblance of Rule of Law would mean that I would have to have my head up my ass.

Well, the good news is I've been seeing the light of day for nearly 10 years now and the corruption in this country, especially in DC, gets worse by the day. And for all those who don't believe that the markets are manipulated or that Government is now operating against your best interests, just ask yourself how many of Obama's campaign promises has he honored? Why is a tax-dodging moron operating as the Secretary of the Treasury? Why was Bush's Secretary of Defense kept on under Obama? Speaking of Obama-lies, I read that Obama's Defense budget is now substantially larger than the Defense budget under George W. Bush. Did all you who voted for Obama really expect that to be a fact nearly three years into Obama's presidency? Take your head out of your ass if you didn't...and then read this: LINK

Saturday, June 11, 2011

is a whoremonger! Usually local politicians are patrons of the arts. Denver's new mayor is a patron of hookers! This is just beautiful. Here's the story: LINK Brilliant! The sad part is that Denver's liberal voter-base had a choice between two Democrats: Chris Romer, descendent from a wealthy, powerful and corrupt family which the whole world knows takes full advantage of its political power to unscrupulously further advance the family's wealth and Michael Hancock, aka Handcock at the hooker agency, an affirmative action poster-child given the nod by Denver libs because the libs wanted to give him the benefit of doubt, just like they did with Obama...

The situation is so pathetic that all you can do laugh hard and shake your head...Now Denver is stuck with an untrustworthy liar who is also likely carrying at one one flavor of STD! The plight of our system is so absurd and the absurd has become reality...

Friday, June 10, 2011

before Obama gets voted out of the White House, as this was reported yesterday on Fox Business News:

Geithner could step down after getting debt ceiling deal done -- Gasparino, Fox Business News - Gasparino reports that there are rumors that Treasury Secretary Geithner could leave after a deal is reached regarding the debt ceiling. He also reported that the Treasury Department will not deny the rumor.

I especially like the comment that the Treasury Dept would not deny the rumor. This rumor has been floating around since Obama's first full year and now maybe it's really true this time.

What will be even more interesting to watch is whether or not Geithner will land a cushy, highly paid position at one of the Too Big To Fail Banks, to which he's been funnelling $100's of billions in Taxpayer money in order to keep them from collapsing and to enable the continuation of $billions in excessive compensation to the architects of this country's systemic demise. Imagine what it says about what a stooge your Treasury Secretary is if he doesn't land a "payback" job at a TBTF...

In case you missed this, Taxpayer/Government-owned GMAC/Ally Financial is pulling its initial public offering for now. LINK The excuse is a weak stock market. But what it tells us is that investors are looking "under the hood" all GMAC and looking at the crappy auto and mortgage assets it has underwritten with massive Government support and running the other way, especially after the dismal performanance of AIG's stock after the Government called in favors to the banks and unloaded a lot stock on Wall Street, which in turn has been flipping out to the market.

It's starting to get ugly out there in the markets. And the markets are reflecting an accelerating deterioration in the condition of our finacial and economic system. It may not seem like it now, but I expect that gold and silver will take many by surprise and soon stage an aggressive price rally in terms of dollars and euros. For sure, demand from India has not slid into its traditional seasonal lull - at least not yet - and the Chinese seem to have an insatiable appetite for the physical metals.

Thursday, June 9, 2011

Couldn't resist the title after seeing Jethro Tull/Ian Anderson, celebrating 40 years of fame, sound surprisingly good last night at Red Rocks. Anderson, the Scottish rocker/bard, will be 65 in August. But let's get on to it...

Many of you already saw this credit downgrade of the U.S. Government by a German ratings agency. A commenter posted the link yesterday in the comment section but I didn't have time to do a blog post: LINK It's worth the quick read if you haven't seen it and here's information on Feri, the entity that issued the report:

Feri EuroRating Services AG is a leading European rating agency for the evaluation of assets in markets and products and one of the leading European economic research and forecast institutes LINK

I would certainly trust Feri's assessment of the U.S. creditworthiness over that of any U.S. credit assessment company and I believe even Feri's view is far too optimistic.

I also wanted to post a great summary of the situation facing this country and the inability of most of the citizens to either comprehend how dire our situation is OR unwilling to look at it and deal with it, preferring instead to cover up their eyes and hope for the best. Here's LINK and I highly recommend spending the time to read it. It's the most honest assessment of what's to come in this country that's been hung out for public perusal and I believe even this one is too sanguine...

As a follow-up to my Monday post about the brewing liquidity problem in the banking system from mortgage delinquencies, here's an accounting of a family in Florida that has been living in its home for 5 years without making a payment: Wow You wanna know who's making up those payments to keep the bank balance sheets above water? We the Taxpayers are. You like apples? How do you like those apples?

And speaking of past, present and future Taxpayer bailouts and subsidizing of banking employee bonuses, recall that AIG's stock is down 55% since January. Well it looks like the U.S. Taxpayer is being set up to transfer even more wealth to AIG and the crooks who run it, courtesy of Geithner and the Obama people. Read this from Zerohedge: LINK

I'm still shocked that the American public looks the other way and accepts this arrangement between Obama and the big financial firms. I'll finish with this little anecdote. Was chatting with a long-time colleague earlier who was meeting with a client who works for a big insurance company selling insurance products. This fella was in a meeting with some big hedge fund managers earlier this week. The hedge fund guys made the comment to the insurance guy that "he should expect that down the road the big insurance companies will never be able to cover the claims which come from all of the crazy insurance coverage they are underwriting because they are in such bad shape financially now."

Just like everything else in American finance, big insurance is a giant, derivatives-infested Ponzi scheme getting closer to blowing up. I think the truth of that statement is contained in the 6-month performance of AIG stock...buona giornata a tutti.

Tuesday, June 7, 2011

Before I get started on my pontifiicating, I wanted to post what I believe could be a quote of the year candidtate from Don Coxe, the well-know Strategy Advisor to BMO's financial group (Bank Montreal):

"The only gold bubble likely to burst is the bubbling ridicule of gold."

I think that statement speaks for itself...

On to keeping your eye on the ball. I was chatting with a long-time colleague this morning who made the comment that "the situation in Greece is getting ugly." I agree that it is, but I remarked, "who cares about Greece?" Greece is small change compared to the brewiing crisis with our banking and financial system. Seriously. I described the Greece/Europe situation to someone this weekend as pure "chaff" being used to deflect our attention from much bigger problems brewing in the U.S. financial/economic system. "Chaff" is metallic material used by jet fighers to redirect radar-seeking missiles, giving the pilot time to maneuver out of harm's way.

The Greece problem is around $400 billion dollars. I'm sure quite a bit of that could be monetized if the country wanted to sell off a few national assets, like a couple of its awesome Aegean Sea islands. I would sell Ios and Mykonos, which have already been ruined by tourism...But lets take a look at just a few of the Too Big To Fail (TBTF) banks in the U.S.

Per yesterday's commentary, the market is signalling enormous problems via the huge negative performance of the stocks of several TBTFs since mid-January. Combined, BAC + WFC + JPM + GS + C + AIG have a total balance sheet of nearly $9 trillion. Let's assume for the sake of a "handgrenade and horseshoe" argument that the combined net worth (assets minus liabilities) is around $900 billion. That could be pretty close because BAC's book value is about 10% of its balance sheet size. Now let's assume that the assets on this beast is only 10% over-priced (and I can guarantee you THAT is generous). That means that just these banks alone have an insolvency issue TWICE the size of Greece.

And the fact of the matter is that I'm only looking at the "on-balance-sheet" GAAP numbers. We have no clue whatsoever what the off-balance-sheet liabilities look like, especially the massive derivatives positions. What we do know is that took over $2 trillion in stimulus and money-printing by the Fed and U.S. Taxpayer to keep the TBTF's from collapsing. A lot of that was related to AIG, which at the time had around a $1.4 trillion balance sheet.

The point is that, if I'm right, and I'm not the only one who is looking at this with a critical eye, then what the hell are we doing worrying about Greece and why is Greece dominating the daily conversations in the financial media? This is what I mean when I say that the Greece situation is being used to deflect attention from the ticking financial nuclear bomb in this country. And I have not even introduced the concept of the U.S. Government's looming insolvency, the several trillion in underfunded retirement funds (those numbers are widely available if you want to google them), or the dire financial condition of several large States....Greece? You have to be kidding me...

Monday, June 6, 2011

I know the financial stocks have been sucking wind lately but I had not really looked at them until today. Financials make-up the highest percentage of stocks by sector in the S&P 500 and thus can be considered a good market signal for information, in general, about what is going on systemically. Currently the SPX is down about 4.4% from its high close this year. But take a look at some of the huge banking/Wall Street stocks: Since Jan 18, AIG is down 55%, BAC -33%, GS is down 22%, Citi down 20% and WFC is down 25% (since Feb 14 on WFC). There's no way of knowing for sure what exactly is going on systemically other than to know that something very ugly is occurring.

Of course, we can take a stab at it based on what we know about the economy and what the Fed is doing. I have believed all along that the "QE" aka money printing has been first and foremost a means to keep the big banks from collapsing and, secondarily, to keep the Federal Government - and de facto most States - from having to close down most operations. After all, the banks are still paying record bonuses and the Government is still happily funding Entitlements and Defense. The only constituency not benefiting from the money printing - and that constituency which is, prima facie, the target of the QE - is the unemployed (or at least the jobless who want jobs and are not living off of unemployment welfare).

Now, we all know that the poker faces in NYC and DC are expressing that they are going to hold firm with no more QE. But does that makes sense given what we know about how bad the economy is AND the dismal performance of the too-big-to-fail banks? Quite frankly, the stock performance of these banks, especially that of AIG and BAC are telling me that there is a massive liquidity problem going on in the banking system. The two entities that should have been allowed to fail, AIG and BAC, but were saved are reflecting this in the performance of their shares. We also know that Goldman was one of the heaviest users of emergency borrowing from the Fed during the last crisis, ostensibly because its fate was wrapped around AIG back then.

And one more point. Zerohedge.com has been doing a marvelous job at tracking the flow of new Treasury bond issuance as it gets repurchased from the primary dealers by the Fed shortly after the Treasury issues it. On average and in general, the Fed has been rapidly taking up to 50% or more of recent Treasury issuance off of primary dealer balance sheets. The PD's have been taking, on average, over 50% of all Treasury issuance. See what's going on here? We also know that since December, the Fed has monetized in excess of 100% of all new Treasury issuance. Here's the latest evidence per Zerohedge: LINK

I've been saying for quite some time that housing was still going south and that banks are choking on mortgages that not being paid AND not classified as in default or in foreclosure. The Fed has enabled this game with its money-printing. Unless some miracle comes along from some corner of the universe OR the Fed folds on QE, something VERY bad is coming our way....got gold?

Sunday, June 5, 2011

Someone explain this one to me: The comatose Attorney General, Eric Holder - yes, the guy who drafted the tax-dodging Marc Rich pardon papers for Clinton to sign as he was walking out of the Oval Office for the last time, has decided that it's okay to look the other way while Wall Street rips off our country and Taxpayers for $100's of billions, but John Edwards needs to be prosecuted and completely humiliated on the front pages of every newspaper for misappropriating a little campaign money. I don't get it. Aren't Holder and Edwards supposed to be Democrat brothers from different mothers? I feel like this White House and Administration are from a different planet than the one that elected it into power. Any questions on who is running the country? (hint: bankers)

Quite frankly, I would like to have all of the records on Eric Holder opened up and published in every newspaper. Let's see what that political zombie's background looks like...

But what really grinds my gears is the fact that NBC is completely f#$king up the coverage of the French Open semi-finals. Right now Federer and Djokovic are in a 1st set tiebreaker and NBC is showing the match on delay. This country's Government and banking system sucks but the television coverage of the important stuff is Third World:

Thursday, June 2, 2011

To begin with, that's a lot of money. And I don't believe that number. I think before we consider some of my points below, to take that number based on Geithner's calculations and proclamations would be more than just pure faith-based naivete, it would be ignorance. That number, before looking at my add-ons below, is no doubt a lot higher than $14 billion (unless of course you put faith in Government-reported numbers).

Here's the news LINK NOT included, I'm sure, in this estimate is the amount of money that was spent to subsidize the financing of autos produced by GM that have flooded the floor of the GM dealer network PLUS the money spent to subsidize the purchase and leasing of these vehicles by the consumer. As an example, and this is well-known to those who observe the news and the facts, the cost of leasing a GM vehicle has been completely subsidized by the U.S. Government. This is accomplished by the Government guaranteeing the "residual value" component of all GM auto leases, enabling the finance company, Ally aka GMAC, to create a lease with an unrealistically high residual value - the value at the end of the lease term, which thereby allows the lessor, GMAC, to create a lease with lower monthly payments and a much lower implied interest rate. But then what happens at the end of the lease when the market value of the used car is substantially lower than the residual value guaranteed by the lease? The Government, aka the Taxpayer, ponies up the difference. We won't know what the final tab is to the Taxpayer on this subsidy clusterfu$k until the leases start expiring, but it will run into the billions. That's just one example. There's also the implicit guarantee of workforce entitlement and benefit plans. Again, billions not included in the $14 billion. It's insane.

Let me just say though, that while some may look at whatever the real amount of lost taxpayer money is as part of a crucial effort to rebuild America's auto industry, the fact of the matter is that IF the Government withdraws its life-support effort, GM will inevitably fail anyway. America's labor and production costs - not to mention the fact that the product sucks compared to the competition, especially the better-priced, better-built Korean models - are not even closely in-line with that of the rest of the world. This is just another one of those situations in which the Government will have wasted billions in resources and actually made things worse. The proper resolution to this situation would have been to endure the short term agony from having GM and Chrysler die and let private entrepreneurs figure out how to make an automobile product that is both profitable for the shareholders AND doesn't burn up taxpayer wealth. All we got with the GM/Chrysler bailout is the ephemeral extension of a dead business and the massive transfer of middle class wealth to the workers and upper management of GM and Chrysler. Once again - just like with Wall Street - the CEO and other senior officers at GM/Chrysler will make millions which are paid with Taxpayer money and the market will fail anyway.

Wednesday, June 1, 2011

Or maybe not, but the "maybe not" means that people running our system are prepared to do something nefarious as they let the U.S. Government default, the stock market collapse and throw 90% of this country into serfdom. Of course, we all DO remember Warren Buffett's famous Nostradamian prediction about the middle class being headed for serfdom, right?

Today the Institute for Supply Management reported that its manufacturing index had hit its lowest level in a year and it had the largest month to month drop since 1984 LINK. Wall Street's brain trust, whose bonuses have been subsidized by the Taxpayer since 2008, missed their forecast to the high side by country mile on this metric. Auto sales are also plummeting again, and GM's channel stuffing per zerohedge's nice chart is at an all-time high: LINK. To review the accounting on this, when GM ships a car to dealer, it records a "sale." It makes no difference whether or not the dealer has a buyer lined up. In fact, GM, or rather the Taxpayer courtesy of Obama/Geithner, actually gives the dealer the money to finance the "purchase." So, not only were GM's sales for May below that of May 2010, but if the Taxpayer was not giving dealers the money to "buy" these cars, GM's sales would have fallen off of a cliff. Talk about a Ponzi scheme...

What all this means is that it's collapse or print money time. I heard that several are now calling for QE3 because the economy needs it. But in fact, here's the pecking order for the next round of QE: It will go FIRST to the big banks, SECOND to funding Treasuries, and LAST it will trickle down to the poor people and unemployed living off the Taxpayers. They will be taking this transfer of wealth from the middle class and the descendants of the middle class, where "middle class" is defined as anyone not on foodstamps or unemployment welfare OR anyone not wealthy AND liquid enough to buy a Federal Congressman or Senator.

The precious metals have sniffed this out and both silver and gold ran higher after this morning's economic reports. The ONLY thing keeping silver from blowing through the roof is the unfettered, unregulated, illegal paper-selling on the Comex by JPM, HSBC, et al. Even many respected market analysts who, for the previous 10 years sneered at GATA's "conspiracy theories" and refused to acknowledge the extreme manipulation of Comex gold and silver, are now concluding and reporting this very fact. Richard Russell the most notable among them. And by the way, for all those drooling over Jim Grant's interview on youtube yesterday: he's got turds for brains when it comes to precious metals analysis.

Bubble-meter update - or should I say "anti-bubble-meter:" Today the front section of the Denver Post had one full-page ad and one 3/4-page ad from TWO different entities begging the public to sell them their gold. The full-page ad was the back page of the front section, which is prime-time space. These are not cheap ads to run. And they will buy anything from bullion coins to cheapo 12-karat rapper-wear jewelry. THIS is NOT the sign of a bubble. It is a sign that smart money is working overtime to buy something cheap before it becomes dear. When it becomes dear, we will see ads begging the public to BUY all this gold and silver from those buying it NOW and those selling that gold/silver now will soon be left holding the massive liabilties being issued on their behalf by Obama and Congress, who in turn are handing the funds from the issuance of those liabilities to Wall Street. Capisci? Got gold? Silver?

Eric Arthur Blair aka George Orwell

"Hope" is not a valid investment strategy

Full Time Jobs Over Last 5 Years

Is Your Gold Missing?

Why Gold?

Gold is the world's oldest currency. You exchange your fiat currency (dollars, euros, yen, yuan) into gold as an insurance policy against catastrophic Central Bank and Government policies which serve to destroy the value of fiat currencies and destroy democracy.

Gold can ONLY be considered an investment to the extent that it remains significantly and historically undervalued in relation to the fiat currencies against which its value is measured. Otherwise it remains the world's oldest currency and is completely free from the counterparty risk associated with currency by Government fiat (i.e. fiat currencies rely on a Government's "full faith and credit.")

Epic Quote - "Jesse" Sent This To Me

"The world will soon wake up to the reality that everyone is broke and can collect nothing from the bankrupt, who are owed unlimited amounts by the insolvent, who are attempting to make late payments on a bank holiday in the wrong country, with an unacceptable currency, against defaulted collateral, of which nobody is sure who holds title." - Anonymous

The Basic Fundamental Problem

What's the solution?

“THERE IS NO MEANS OF AVOIDING THE FINAL COLLAPSE OF A BOOM BROUGHT ABOUT BY CREDIT EXPANSION. THE ALTERNATIVE IS ONLY WHETHER THE CRISIS SHOULD COME SOONER AS THE RESULT OF A VOLUNTARY ABANDONMENT OF FURTHER CREDIT EXPANSION OR LATER AS A FINAL AND TOTAL CATASTROPHE OF THE CURRENCY SYSTEM INVOLVED.”

Ludwig von Mises – Austrian Economist (1881- 1973)

Quote Of The Month Courtesy of "Jesse"

Unfortunately for Larry Summers, Ben Bernanke, and their friends at the BIS, they have not yet figured out how to print physical gold, silver, and other essential commodities, and the world is reaching the point where it might simply start ignoring the New York based markets with respect to essential commodities such as basic materials, oil, foodstuffs, and the like, as they become increasingly irrelevant, fraudulent, and Orwellian. And then where will the financial engineers be, except with no more excuses and no place to hide?

Great Quote From Jim Rogers On Govt CPI Reporting

JR: I mean, we have inflation now. If you go to the shop, whether it’s groceries, or education or insurance or health care, prices are going up for everything. The government lies about it in the US. Some countries lie, many countries don’t: Australia, China, India and Norway. Many countries don’t lie about it and acknowledge that we have inflation. Others lie about it, the UK and the US, but if you go shopping you know prices are up.

Q: Are you saying that the American Consumer Price Index (CPI) published by the US Bureau of Labor Statistics is a lie? JR: In my opinion, yes, of course it is. Have you looked at it? They’ve changed their accounting several times in the past few decades. When housing was 20% to 25% of the CPI and housing was going up, they didn’t count it, saying rents weren’t going up, and then when home prices started going down, they counted it. It’s the same with many things. It’s staggering some of the tortuous reasoning that the BLS has used over the past 25 or 30 years. When the price of gasoline goes up, they say it’s not really going up because it’s better gasoline, better quality, therefore you’re getting more for your money. I mean, it’s endless, the stuff that they say and for some reason people sit there, although more and more people are catching on, and accept what the government says.

Priceless Quote From Richard Russell

On Larry Summers: This doofus practically ruined Harvard when he headed it. I can't think of a worse choice to be chief economic advisor. I wouldn't trust Summers to manage a Starbucks franchise.

Quote of the Week

"The primary function of a Central Bank is to engage in the massive transfer of wealth from the middle class to the wealthy elite. The Federal Reserve was set up to do this with the blessing and support of Congress." - Dave in Denver

If you refuse to believe the above, please read "The Creature From Jekyll Island: A Second Look at the Federal Reserve" by G. Edward Griffin and then explain to me why the Senate voted down the Vitter Amendment and Congress refuses to pass a law requiring a full audit of the Fed, even though the Fed is using taxpayer-backed money to bailout Wall Street and Europe.

Quote of the Month

And very relevant in the context of yesterday's post about gold moving higher against all fiat currencies:

Just imagine what would happen if a mere ten percent of the money currently going into bonds were instead to go into gold. As in 1972, the real move has yet to begin.

- Murray Pollit, Pollit & Co.

A Picture Says It All...

www.moneyandmarkets.com

Golden ore samples produced by Eurasian Minerals

Undisclosed exploration site

The Next Reserve Currency?

1 oz. Chinese Panda

Guess who said this?

Rising prices of precious metals and other commodities are an indication of a very early stage of an endeavor to move away from paper currencies...What is fascinating is the extent to which gold still holds reign over the financial system as the ultimate source of payment.

-Alan Greenspan, 9 Sep 2009

THIS is what REAL money looks like

1 oz. Gold Eagles

Alan Greenspan said what?

“Deficit spending is simply a scheme for the ‘hidden’ confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights.”

From "Gold and Economic Freedom" a 1966 Essay by Alan Greenspan

About Me

I spent many years working in various analytic jobs and trading on Wall Street. For nine of those years, I traded junk bonds for a large bank. I have an MBA from the University of Chicago, with a concentration in accounting and finance.
Currently I co-manage a precious metals and mining stock investment fund in Denver.
My goal is to help people understand and analyze what is really going on in our financial system and economy.